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TARP's bank bailout program nears break-even point with latest repayment

February 2, 2011 | 2:49
pm

The program under the $700-billion financial bailout package that pumped money into banks moved closer to break-even Wednesday as another large financial institution repaid its cash infusion.

The Treasury Department announced that Fifth Third Bancorp had fully repaid the $3.4 billion it received from the Troubled Asset Relief Program. The Cincinnati institution received the money on Dec. 31, 2008 -- some of the $245 billion dished out under TARP's Capital Purchase Program to stabilize the U.S. banking system.

With the check from Fifth Third Bancorp, total repayments under that program have reached $243 billion, Treasury said. Programs that bailed out banks are now estimated to turn a $20-billion profit.

“As the economy heals, we’re continuing to see private capital step up and replace public support in the financial sector, which has dramatically lowered the cost of TARP for taxpayers,” said Tim Massad, who heads TARP as acting assistant Treasury secretary for financial stability.

But while the bank bailouts are expected to make money, TARP also pumped about $165 billion into a host of other programs, including rescues of American International Group, General Motors and Chrysler, that are projected to post an overall loss.

Still, the latest estimate from the nonpartisan Congressional Budget Office put TARP losses at $25 billion -- far less than initially projected. Only about $410 billion of the $700 billion was distributed and no new TARP programs can be started.

Overall repayments now stand at more than $274 billion, Treasury said.

Part of the reason the bank bailouts are set to turn a profit is the dividend payments on the preferred shares that Treasury received for the cash infusions. Fifth Third Bancorp has paid about $341 million in dividends so far -- a 10% return for the government -- with more money likely to come in because the government still holds warrants to purchase about 44 million shares of common stock.

But some small banks have struggled to repay their TARP money, and many have missed at least one dividend payment, the Congressional Oversight Panel monitoring the bailout reported last summer. And TARP's program to help homeowners facing foreclosure has been sharply criticized.

Fifth Third Bancorp Chief Executive Kevin Kabat said the firm appreciated the help of U.S. taxpayers and that the repayment represented "an important milestone" for the bank.

"Having completed this repayment, our capital position and balance sheet will be among the strongest of peer institutions, and we expect that position to continue to strengthen through profitable results," he said.